On 17 June the MPC voted for the Bank of England to continue with its existing programme of £200bn of UK government bond and sterling non-financial investment-grade corporate bond purchases, and to increase the stock of purchases of UK government bonds, financed by central bank reserves, by an additional £100bn.
At its meeting ending on 4 August the Committee continued to expect the UK government bond asset purchase programme to be completed, and the total stock of purchases to reach £745 billion, around the turn of the year.
Asset Purchase Facility: Gilt Purchases
This market notice sets out details of the Bank’s planned APF gilt purchases taking place from the week commencing 10 August 2020. It covers the completion of the purchases announced in June1, and the reinvestment of the proceeds of a gilt maturity occurring on 7 September 2020.
For the avoidance of doubt this Market Notice does not affect the gilt purchase operations already scheduled for Thursday 6 August 2020.
From the week commencing 10 August 2020 APF gilt purchase operations will take place on Mondays, Tuesdays and Wednesdays. The Bank plans to conduct three 30 minute auctions a week: gilts with a residual maturity of 3-7 years will be purchased on Mondays at 14:15; those with a residual maturity of over 20 years will be purchased on Tuesdays at 14:15; and those with a residual maturity of 7-20 years will be purchased on Wednesdays at 14:15. All times are London time.
The Bank intends to purchase evenly across the three gilt maturity sectors. For operations scheduled between 10 August 2020 and 16 December 2020 the planned size of auctions will be £1,473mn for each maturity sector. This auction size includes the reinvestment of the £7.0bn cash flows associated with the maturity on 7 September 2020 of a gilt owned by the APF.
The Bank will not hold gilt purchase operations on 31 August 2020 due to the UK bank holiday. This operation – for short maturity bonds – will instead be held on Thursday 3 September 2020.
With liquidity conditions having stabilised, purchases can now be conducted at a slower pace than during the earlier period of market dysfunction. Should market conditions worsen materially again, however, the Bank stands ready to increase the pace of purchases to ensure the effective transmission of monetary policy.
The Bank reserves the right to amend the size of the final operations of the purchase round, depending on the size of sterling non-financial investment-grade corporate bond purchases completed, to ensure delivery of a total stock of purchases by the APF of £745bn.
The Bank will confirm details of the following week’s operations each Thursday at 16:00 (London time). The range of gilts eligible for purchase will remain unchanged from previous operations. The Bank does not currently intend to purchase gilts where the Bank holds more than 70% of the “free float”, i.e. the total amount in issue minus government holdings. The Bank will, however, continue to keep the gilts eligible for purchase by the APF under review.
Other than as amended by this Market Notice, previous Market Notices relating to the Bank’s gilt purchases under the APF will apply2.
1 See the 18 June 2020 APF Gilt Market Notice.
2 See the current Consolidated Market Notice: Asset Purchase Facility: Gilt Purchases.